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Courts Allow Third-Party Exhaustion of Policy Deductibles/SIRs

Disputes often arise over whether proceeds from a third-party, including a co-insurer, can satisfy an insured’s deductible or self-insured retention (SIR) obligations under a policy.  A recent decision from the Florida Supreme Court resolved this question in the affirmative.  In doing so, the Florida Court joins other jurisdictions, including Texas, which also allow third-parties to satisfy policy deductibles and SIRs on behalf of a policyholder absent express policy terms prohibiting indirect exhaustion. In Intervest Construction of Jax, Inc. v. General Fidelity Insurance Company, a residential contractor sought to apply a $1 million payment from its subcontractor toward the exhaustion of $1 million SIR owed under a general liability policy in connection with an underlying personal injury lawsuit.  After an initial decision from the trial court finding that the contractor, ICI, could not use the subcontractor’s indemnity payment to satisfy the SIR, the Florida Supreme Court ruled (on a certified question… Continue Reading

Correct Worker Classification Critical to Avoid Penalties under the ACA

Final regulations recently issued by the U.S. Department of the Treasury (the “Final Regulations”) reaffirmed that the definition of “employee” for purposes of the employer shared responsibility provisions of the Affordable Care Act (the “ACA”), also known as the “play-or-pay” rules, is determined by reference to the common law standard for determining employee status.  In general, a “common law employee” is subject to the will and control of the employer – not only as to what should be done but how it should be done.  The Final Regulations declined to adopt suggestions by some commenters under the previously proposed regulations that relief from the play-or-pay penalties should be provided for employers that misclassify workers who are later determined to be common law employees. To avoid what could be substantial penalties under the ACA, employers should carefully assess their workforces to ensure that all common law employees have been properly identified and… Continue Reading

Offer of Coverage on Behalf of Another Entity under the ACA

To avoid the play-or-pay penalties under the ACA, an employer must offer “minimum essential coverage” to a certain percentage of its full-time employees (determined under the common law standard discussed above). The Final Regulations provide certain circumstances under which an offer of coverage by another entity could be considered to have been made on behalf of the common law employer. For example, where an entity is the common law employer of a worker whose services are provided through a staffing agency, an offer of health plan coverage by the staffing agency may be treated as an offer of coverage by the common law employer, but only if the common law employer pays a higher fee to the staffing agency for a worker who enrolls in health coverage than the employer would pay if the worker did not enroll in the plan.  The Final Regulations can be found here.

IRS Releases Guidance on the Treatment of Same-Sex Spouses for Retirement Plan Purposes

On April 4, 2014, the IRS released Notice 2014-19, which provided new guidance on the application of the Windsor decision to qualified retirement plans.  Notice 2014-19 clarified that a qualified retirement plan is not required to recognize the same-sex spouse of a participant prior to June 26, 2013 (the date of the Windsor decision) or to recognize such same-sex spouse prior to September 16, 2013, if the participant resided in a state that did not recognize same-sex marriages.  A plan amendment is only required to the extent the plan’s terms are inconsistent with the Windsor decision and related guidance (for example, if the plan’s definition of “spouse” refers to the Defense of Marriage Act or applies the marriage laws of a participant’s state of domicile).  A plan amendment also is required if the plan chooses to apply the Windsor decision for some or all plan purposes prior to June 26,… Continue Reading

IRS Issues Guidance Regarding Improper Payments from Health FSAs

On March 28, the Internal Revenue Service (the “IRS”) released a Memorandum from the Office of the Chief Counsel of the IRS which addressed several issues regarding correction procedures to follow in the event that improper payments are made from an employee’s health flexible spending account arrangement (“HFSA”).  The following guidance was provided: (1) the correction procedures for debit cards in the proposed cafeteria plan regulations may be used to correct improper payments from HFSAs; (2) an employer may apply the correction procedures in those proposed regulations in any order, except that the employer may only forgive an improper payment from an HFSA as an uncollectible business debt after all other permissible correction methods have been attempted; and (3) if an employer does forgive an improper HFSA payment as an uncollectible business debt, the amount forgiven is to be reported as wages on Form W-2 and is subject to withholding… Continue Reading

Supreme Court Holds that Severance Payments are Subject to FICA

In rejecting the decision of the U.S. Court of Appeals for the Sixth Circuit, the U.S. Supreme Court recently ruled unanimously in favor of the IRS and held in United States v. Quality Stores, Inc. that severance payments for involuntary terminations of employment are generally subject to Federal Insurance Contributions Act (“FICA”) taxes (i.e., Social Security and Medicare taxes). In taking a broad view of the FICA statute, the Court concluded that severance payments are “remuneration for employment” within the meaning of the FICA statute and in consideration for employment. The Court also ruled that the payments made by Quality Stores, which were based on individuals’ positions with the company and their years of service, were specifically tied to their employment, and thus, wages for purposes of FICA.  United States v. Quality Stores, Inc., No. 12-1408 (U.S. Mar. 25, 2014).

DOL Issues Proposal to Amend 408(b)(2) Regulations

The U.S. Department of Labor proposed an amendment to the regulations under ERISA Section 408(b)(2) that would require service providers to provide a guide to employers to assist the employer in understanding the fee disclosures.  The guide would be required if disclosures are made using multiple or lengthy documents.  The guide would be required to specifically identify the document, page, or other specific locator, such as section, that would enable the employer to quickly and easily find fee information.  An announcement of the DOL’s proposal can be found here, and the text of the proposed amendment can be found here.

IRS Delays Application of One Indirect Rollover Per Taxpayer Per One-Year Period Rule

The general rule under Internal Revenue Code Section 408(d)(3)(A)(i) is that a participant who receives a distribution from an IRA can avoid tax on the distribution if the distribution is rolled back into an IRA within 60 days after receipt.  However, this is limited to one distribution/rollover per one-year period.  The IRS had issued Proposed Regulation § 1.408-4(b)(4)(ii) and IRS Publication 590, Individual Retirement Arrangements (IRAs), each providing that this limitation is applied on an IRA-by-IRA basis.  However, in Bobrow v. Commissioner, T.C. Memo. 2014-21, the U.S. Tax Court held that the one distribution/rollover limit is applied on a taxpayer basis, not an IRA-by-IRA basis.  This means that, in a given one-year period, a taxpayer with multiple IRAs could receive only one distribution that is rolled over back into an IRA and have it excluded from gross income.  The IRS announced that it intends to follow this decision and will… Continue Reading

Final Regulations Clarify Transitional Reinsurance Fee Payment Requirements under the Affordable Care Act

The U.S. Department of Health and Human Services (“HHS”) issued final regulations, published on March 11, 2014, setting out the amounts for 2015 coverage to be charged to self-funded and insured health plans that provide “major medical coverage” for the transitional reinsurance fee (the “Fee”) under the Affordable Care Act (the “ACA”).  The transitional reinsurance program is one of the risk programs implemented by the ACA to minimize the incentives for health insurers in the individual and small-group markets to avoid enrolling higher-risk individuals, by transferring funds to insurers who cover higher-risk populations.  The amount of the Fee is based on the number of “covered lives” under the plan, determined in accordance with one of four HHS-approved methods and reported to HHS by November 15 of the coverage year.  In addition to confirming the definition of “major medical coverage” for purposes of the Fee, the regulations provide that the Fee… Continue Reading

Fifth Circuit: Investment Advisor Paid by a Third Party is Not an ERISA Fiduciary

The U.S. Court of Appeals for the Fifth Circuit recently held that an investment advisor was not a fiduciary for purposes of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), because he did not receive any fees from the retirement plan for his advice regarding the investment at issue in the case, but received a commission from the third-party broker/dealer used to make the investment recommended by the advisor. Under ERISA, an investment advisor is an ERISA fiduciary if, among other things, he or she renders investment advice to an ERISA plan for a fee or other direct or indirect compensation. The Fifth Circuit did not address whether the third-party commission was indirect compensation for the advisor providing investment advice to the retirement plan. Rather, the court relied on its own precedent, that a commission paid by a third party is not the same as a fee… Continue Reading

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